Shares in RTX Corp NYSE:RTX have had an interesting year of it. We are still in the black on our RTX position, but the stock has seen somewhat of a sell off recently, shedding about $10 from the price. But is this being news-driven, as the war in Ukraine has begun to become more background noise for investors more worried about inflation and the Chinese economy?
RTX Corp is still rated a hold by our data partners BridgeWise. RTX published its Q2 report on 25 July, with positive results. The numbers do not provide any significant upside factors that distinguish it from peers, and this may have spooked some investors, with the stock down 11% since last filing.
Investors are also bothered by issues found with the alloying on HPT disks in the company’s PW1000G engines, which caused an incident on a Vietnamese Airbus in 2020. But the cost of actually taking the disks out and replacing them is going to be surprisingly low. Some commentators feel this is a storm in a tea cup for RTX.
- Solid State sees tentative signs of cyclical improvement
- SRT Marine Systems confident of 2025 outlook despite short-term challenges
- TT Electronics: Hidden gem or value trap?
The stock is closing on its 52 week low of $81, which will be a strong sell signal for many investors. Overall technical factors, like the 50 day moving average, are also now in bearish territory, but the RSI looks good.
Engine issues aside, further price gains near term are going to be driven more by macroeconomic factors. RTX has very balanced liabilities when you compare it with its peers and this projects a message that management is capable, and is focused on balancing asset growth, resource allocation and growing liabilities.
Five things to know about RTX Corp
- Aerospace and defence company which provides systems and services to commercial, military and government customers around the world
- Owns Pratt & Whitney, which supplies aircraft engines for commercial use (e.g. Airbus engines)
- Hit by sanctions from China in February for supplying parts and weapons to Taiwan, but continues to rely on China’s manufacturing muscle, as well as supplying clients in China
- Used to trade as Raytheon Technologies, but rebranded as RTX, although its defence businesses will continue to trade under Raytheon brand
- CEO Greg Hayes remains confident RTX Corp can hit $9bn free cash flow by 2025
RTX Corp still possesses strong recurring services revenue, and the current price in the stock is being ascribed to over-cooked fears around the HPT disks issue. P&W has now inspected more than 3000 aircraft and Hayes himself has said this is not a flight safety problem. The company has also called in over 1200 engines in order to accelerate the inspection process. It has already changed the manufacturing process that led to the defect.
- Stock recommendations by Bridgewise. Try a free trial of Data+ for a deeper look.
Risk factors
China issues aside, one of the big risk factors RTX has been facing has been the inability to meet customer demand. With commercial airlines expanding again, manufacturers are asking for more engines, and global supply chains are still in an egregious state despite two years of grace since the end of pandemic lockdowns.
This was a big theme at the recent Paris Air Show, and it is an issue that RTX is not alone in facing. More capacity needs to come online, and soon. Faster than anticipated wear and tear has not helped the case with Pratt & Whitney. It is also affecting the manufacture of rocket motors – e.g. for missiles.
Keep an eye on book value factors, which look a little problematic. These now sit at 1.75 (price to book ratio), which is down 11% on the previous RTX report.
